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Why Susie owns Starbucks: The name letter effect in security selection

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  • Knewtson, Heather S.
  • Sias, Richard W.
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    Abstract

    We examine whether security selection is influenced by the name letter effect--a psychological predisposition to select items that start with leading own name letters. Two sets of tests reveal evidence that the name letter effect influences investors' security selection decisions. First, breadth of ownership (as measured by the number of institutional investors holding the security) is positively related to U.S. name letter frequency, e.g., stocks that begin with the common name letter "M" exhibit a greater number of institutional shareholders than stocks that begin with the less common name letter "X." Second, undergraduate students managing university endowment funds are more likely to select securities for evaluation when the stock's name begins with the same letter as their name.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 63 (2010)
    Issue (Month): 12 (December)
    Pages: 1324-1327

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    Handle: RePEc:eee:jbrese:v:63:y:2010:i:12:p:1324-1327

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    Web page: http://www.elsevier.com/locate/jbusres

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    Keywords: Name letter effect Security selection Investor bias Role of emotions;

    References

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    1. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
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    3. Spangenberg, Eric R. & Grohmann, Bianca & Sprott, David E., 2005. "It's beginning to smell (and sound) a lot like Christmas: the interactive effects of ambient scent and music in a retail setting," Journal of Business Research, Elsevier, vol. 58(11), pages 1583-1589, November.
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    8. Buck, Ross & Anderson, Erika & Chaudhuri, Arjun & Ray, Ipshita, 2004. "Emotion and reason in persuasion: Applying the ARI model and the CASC Scale," Journal of Business Research, Elsevier, vol. 57(6), pages 647-656, June.
    9. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    10. Puccinelli, Nancy M. & Deshpande, Rohit & Isen, Alice M., 2007. "Should I stay or should I go? Mood congruity, self-monitoring and retail context preference," Journal of Business Research, Elsevier, vol. 60(6), pages 640-648, June.
    11. Krabuanrat, K. & Phelps, R., 1998. "Heuristics and rationality in strategic decision making: An exploratory study," Journal of Business Research, Elsevier, vol. 41(1), pages 83-93, January.
    12. C. Miguel Brendl & Amitava Chattopadhyay & Brett W. Pelham & Mauricio Carvallo, 2005. "Name Letter Branding: Valence Transfers When Product Specific Needs Are Active," Journal of Consumer Research, University of Chicago Press, vol. 32(3), pages 405-415, December.
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    Cited by:
    1. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2011. "Recent trends in trading activity and market quality," Journal of Financial Economics, Elsevier, vol. 101(2), pages 243-263, August.

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